Friday, July 22, 2011

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Japan records surprise trade surplus

  • Friday, July 22, 2011
  • Aruntha Kanagaratnam
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  • Japan posted an unexpected trade surplus for the first time in three months, adding to signs that manufacturers are recovering from the huge disruption caused by the March 11 earthquake and tsunami.

    Japan returned to a narrow trade surplus of Y70.7bn ($898.4m) in June, compared with a market forecast for a deficit of Y150bn, data from the finance ministry showed.

    The pace of the decline in exports slowed to 1.6 per cent to Y5,775.9bn, compared with double-digit falls in the previous two months. Meanwhile, imports rose 9.8 per cent to Y5,705.2bn, a smaller increase from May's 12.3 per cent rise.

    Companies so far appear to be coping with power restrictions during peak times by shifting some production to weekends, as the crisis continues at the Fukushima Daiichi plant and while other nuclear facilities remain offline following regular checks amid a lack of political clarity over restarting them.

    However, it is unlikely to be plain sailing for Japanese exporters. There remain concerns about power shortages ahead, particularly during the peak summer month of August.

    Economists also highlight worries over external demand that could hamper a full recovery for manufacturers. Markets have been concerned for some time about a slowdown in the US and China, while huge uncertainties surrounding the eurozone debt crisis raise questions over future demand for Japan's exports.

    "We see a cloud over external demand that should be regarded as a downside risk for exports over the medium term," said Chiwoong Lee at Goldman Sachs. The US bank has cut its forecast for US growth this year to 2.3 per cent from 2.5 per cent.

    Kyohei Morita, an economist at Barclays Capital, said that concerns about a global slowdown are valid but that he does not expect a decline that would derail a recovery in exports. He added that although the Chinese government is taking measures to rein in inflation, policy could become more stimulative ahead of next year's National Congress of the Communist Party. Combined with expectations for lower power constraints at the end of the year, the Japanese economy should experience a V-shaped recovery in early 2012, he said.

    A strong yen is another cause for concern among Japan's exporters. The currency has appreciated close to levels not seen since the G7 intervention in March when the yen shot up to a record of Y76.25 against the US dollar following the natural disaster. This makes exported Japanese goods less competitive and adds pressure to companies to shift more production overseas.

    The yen was trading at Y78.70 against the dollar as of midday in Tokyo.

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